The Cliff of Unintended Consequences

“Unintended consequences” typically refer to the unforeseen negative results of something we do. We build a factory across the border because labor is cheap and laws are lax, thinking everyone will certainly benefit from the trickledown effect of low-cost window cleaner. The view will be better too. But what of those who no longer have a paycheck with which to buy this now fabulously cheaper product? OK, that’s just an example. But what about the unintended consequences of not doing something? Here’s a scenario related to the nonprofit workforce.

When we think of people working in nonprofits—no wait, back up—we actually don’t give this much thought. When we think of the organizations that comprise the charitable arm of society, we tend to assume that if we just donate to our favorite agency, the rest will take care of itself. We don’t typically think about the people because, of course, they are either just volunteering their time or ought to be. (The goodness in their hearts will surely pay off their student loans and their mortgage payments. No need for infrastructure, administration, strategic planning, or health benefits.)

In the for-profit arena, it’s well established that talent is essential to strong performance. Between fifteen and 30 percent of the value of a company is correlated to human capital, and companies with enlightened management policies show higher returns on investment. Skilled management is the most important determinant of success, and a deep talent pool is critical to sustainability.

By contrast, nonprofits are utterly unprepared for what is about to hit them. Two-thirds of executive directors expect to leave their jobs within five years, and only 13 percent of nonprofit organizations have succession plans. Poorly managed executive transitions can cost the organization 2 to 10 times a person’s salary, as cumulative losses include additional staff turnover, missed opportunities, decreased funding, and diminished service. Acutely needed organizations can collapse entirely. Just when government spending cuts could send the nonprofit sector scrambling, we can’t let this happen!

Here’s the honest truth: The nonprofit sector, for all the good it does, is dangling precariously off our collective cliff of unintended consequences. As a society, we tend to presume that organizational excellence and positive outcomes are built on financial resources alone, with little need for a truly talented workforce. Meanwhile, the nonprofit sector does an absolutely dismal job of talent development—from start to finish—making little effort to recruit, retain, or retire people gracefully. The greatest challenge for the sector today is not economic; it’s demographic, as 10,000 people in the United States will turn 65 every day for the next twenty years.

It’s difficult to measure the return on investment (ROI) of the philanthropic sector, but let’s calculate the unintended consequences of not paying attention to this need for talent development. Let’s look at the equation. There are about 1.8 million nonprofit organizations in the US. Let’s assume that half of these agencies are big enough to have paid staff, that just 50 percent of executive directors (less than predicted) will be leaving soon, that 80 percent don’t have succession plans, and that poor planning will cost twice the executive director’s annual salary, which we’ll calculate at a very reasonable $50,000.

This amounts to a conservative estimate of $36 billion in lost opportunity. That’s a pretty darn high cost of ignorance—a colossal cliff of unintended consequences. And just when we thought we shouldn’t be wasting money.

Who will be most directly affected by this oversight? Again, if we ignore the nonprofit workforce itself (the counselors dealing with the aftermath of a school shooting, the visiting nurse at the bedside of someone’s dying mother), presumably those at the mercy of our unintended consequences would be the people who these workers serve—our youth, elderly, people with disabilities, homeless puppies. What can be done? We’ve come up with some solutions:

Clarify opportunities. First of all, it’s a sexy sector. It really is. It’s the ultimate change-focused entrepreneurship with 98 percent of staff saying their jobs positively impact community. We must clarify opportunities in the field and recruit people to positions and organizations that best suit them. This is not a stretch; it’s essential.

Open doors. We must hear the voices of the next generation and incorporate elements of their preferred leadership style into our organizations. The workforce that is emerging is different. There are real cultural variances that cannot and should not be avoided. We must embrace diversity and be truly inclusive. This is not flippant; it’s the future.

Let people grow. We must provide people at all levels ample opportunity to continually develop both personally and professionally. We must allow them to try on real leadership roles, and we must mentor them as necessary. Young people who tend to expect this sort of guidance will particularly welcome this.

Reframe leadership. Many nonprofits grew out of the social movements of the 60s and 70s. Their founders lived and died for their causes. Younger workers are not interested in these all-consuming positions. We need to craft graceful exit strategies and reframe top positions to be more appealing—doing whatever it takes to offer a healthier work-life balance to the next generation.

Explore creative compensation. We must be creative about alternative compensation. Flex time is highly valued. Clocking in and out with a stamp on your card is demeaning. We no longer live in the 1930s. Women want to work and raise their children. Men do too. Extra perks can come in the form of restaurant vouchers, gas coupons, ski passes, and concert tickets.

Be better together. For nonprofits on tight budgets, it’s hard to sustain daily operations, let alone prioritize talent management. To make talent management easier for individual nonprofits, we are testing models across Colorado, where groups of nonprofits and other partners are working together to test approaches that interweave human performance strategies and leveraging of resources.

Go to the top. Nonprofit boards can provide leadership in promoting talent development and ensure that resources are available for this. Likewise, funders should request that their grantees exhibit not only sound fiscal management, but also proactive talent management, as both of these elements are essential to achieving impact.

Offer support. Let’s not push nonprofits off the cliff. We’ve had several funders tell us recently that any proposal from an organization facing executive transition gets tossed automatically in the “no” pile. Transitions offer valuable opportunities to adapt to challenging circumstances, but they’re messy. Retaining a third-party to guide the process can be invaluable. This isn’t excessive; it makes perfect sense.

When we contribute financially to a nonprofit, we make an investment in a cause and we want our dollars to count. But dollars alone don’t make the difference. It’s not enough to put food on the shelf—a strong team of talented people is truly the key to success. Can we afford to leave our future to chance? Are we sitting on our assets? Please join us in advancing efforts to strengthen talent and leadership development for the nonprofit sector!

Alexandra Mitchell & Jeffrey Pryor are widely recognized for their work in philanthropy and the nonprofit sector. They are the co-founders of Pathfinder Solutions, a nonprofit research and advisory firm that specializes in talent and leadership development for civil society. Over the past decade, Pryor and Mitchell have worked with state and national nonprofit and foundation associations such as the Council on Foundations to promote the value of quality talent and leadership. They are also writing a book, for which they have interviewed leaders of many of the world’s most prominent nonprofit organizations, including Habitat for Humanity, The Nature Conservancy, and American Red Cross, as well as a host of icons, including Desmond Tutu, Bill Clinton, Jane Goodall, Oscar Arias, and Dave Matthews. They have also conducted surveys involving 5,000 people involved in civil society to understand how human capital can be discovered and developed both for the immediate and long term future. In addition, Pryor and Mitchell teach at the undergraduate and graduate level at the University of Colorado and Regis University, and engage students in applied research on civil society.